Short Answer

In North Carolina, you can often preserve SSI/Medicaid by changing how trust assets are held and paid. The most common paths are (1) decanting the current trust into a new trust with special needs provisions, or (2) asking the Superior Court to modify the trust to add those protections. If funds will be paid to you personally, consider a first‑party special needs trust, an ABLE account (within limits), or a targeted spend‑down before receipt. Act before the sale proceeds are distributed.

Understanding the Problem

You’re in North Carolina, serving as trustee of a family trust that owns the home you live in. The trust plans to sell the house and pay existing debts, but the trust has no special needs language and would distribute the net proceeds outright to you. You want to keep your SSI/Medicaid while fulfilling your trustee duties. The question is whether you can change the trust or its payout so the proceeds don’t count against your benefits.

Apply the Law

North Carolina law gives two main routes to prevent trust proceeds from jeopardizing needs‑based benefits: (1) a fiduciary “decanting” to a second trust with special needs provisions, including a specific special‑needs decanting option when a beneficiary has a disability; and (2) judicial modification of the trust’s terms by the Superior Court under the Uniform Trust Code. Decanting generally does not require a court order but does require written notice before it becomes effective. Court modification is filed in Superior Court (not the Clerk) with proper parties and venue. Timing matters—protective steps should occur before proceeds are distributed outright.

Key Requirements

• Authorized fiduciary/discretion: The trustee (or appointed special‑needs fiduciary) must have the legal authority to decant or seek court modification; for standard decanting, the fiduciary needs discretion over principal. A special‑needs decanting path exists even when principal discretion is limited, if a beneficiary has a disability.
• Notice for decanting: Written notice to required parties, including qualified beneficiaries (and others specified by statute), at least 60 days before the decanting takes effect, unless properly waived.
• Limits on decanting terms: You cannot add new current beneficiaries, reduce vested interests, or evade distribution standards; the second trust must track key limitations from the first trust.
• Judicial modification standard: If using court modification, either all required consents are obtained (by statute) or you must show unanticipated circumstances or administration issues that justify adding special needs protections, consistent with the trust’s purposes.
• Forum and venue: Court actions to modify/terminate under Article 4 must be filed in Superior Court; venue is typically where the trust is administered or where a beneficiary resides.

What the Statutes Say

• North Carolina Gen. Stat. § 36C-8B-13 (Special-needs decanting) – Allows a special-needs fiduciary to decant to a special needs trust for a beneficiary with a disability.
• North Carolina Gen. Stat. § 36C-8B-7 (Notice of decanting) – Requires written notice to specified parties at least 60 days before decanting becomes effective.
• North Carolina Gen. Stat. § 36C-4-411 (Modification/termination by consent) – Permits modification or termination with required consents; court may approve if not all consent and protections are met.
• North Carolina Gen. Stat. § 36C-4-412 (Unanticipated circumstances) – Court may modify terms if needed to further the trust’s purposes when circumstances were not anticipated.

Analysis

Apply the Rule to the Facts: Because the current trust would pay sale proceeds to you outright, the funds could be counted as resources for SSI/Medicaid. Before any distribution, you can pursue a decanting into a second trust with special needs provisions so the trustee can pay for your supplemental needs without cash distributions that jeopardize benefits. If decanting is unavailable or risky (e.g., limited discretion or other constraints), file in Superior Court to add special needs terms under consent or unanticipated‑circumstances standards. As a backstop for smaller amounts, consider an ABLE account contribution or a permitted spend‑down timed before receipt.

Process & Timing

1. Who files: Trustee (as authorized fiduciary). Where: No filing is required for a standard decanting; optional petition for approval goes to Superior Court in the proper county. What: Written decanting instrument and 60‑day notices with copies of the current and proposed trust terms. When: Give statutory notice at least 60 days before the decanting’s effective date.
2. If decanting is unavailable or contested, Who files: Trustee or beneficiary. Where: Superior Court (not the Clerk). What: Civil action to modify under Article 4; include required parties and proposed special needs provisions. When: File before any outright distribution; court timing varies by county.
3. After approval or effective decanting, the trustee sells the property, pays valid debts/costs, and holds net proceeds under the new special needs terms. Coordinate with SSI/Medicaid caseworkers to document the non‑countable structure and avoid interruptions.

Exceptions & Pitfalls

• Decanting limits: You cannot add new current beneficiaries, reduce vested interests, or loosen an ascertainable distribution standard in the second trust.
• Authority gaps: If the first trust restricts principal distributions, use the special‑needs decanting path or seek court modification; do not distribute outright while undecided.
• Wrong forum: Article 4 modifications/terminations must go to Superior Court; the Clerk of Superior Court does not have jurisdiction for those actions.
• Timing risks: An outright distribution, even for one month, can suspend SSI/Medicaid. Secure the new trust structure before closing or distribution.
• First‑party SNT/ABLE constraints: First‑party SNTs have federal age and payback requirements; ABLE accounts have annual and balance limits. Use them only as part of a coordinated plan.
• Notice defects: For decanting, serve all required parties and include the documents specified by statute, or the decanting may be challenged.

Talk to a Estate Planning Attorney

If you’re facing a trust sale that could disrupt your SSI or Medicaid, our firm can help design and implement a compliant special needs structure on a tight timeline. Call us today to discuss your options and deadlines.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.